From Neue Zürcher Zeitung's TheMarket.ch, June 23:
George Magnus, the former chief economist of UBS Investment Bank and author of the book «Red Flags», explains the disappointing economic recovery in China and says why the talk of de-dollarization remains wishful thinking.
Deutsche Version
China is turning into a disappointment for global financial markets. The hoped-for boom following the end of the zero Covid policy has fizzled out. Consumers are holding back, and the real estate sector in China is not getting off the ground.
In an in-depth conversation with The Market NZZ, the economist and longtime China observer George Magnus talks about the political and economic challenges facing the world’s second-largest economy. He warns investors from placing too much hope in monetary and fiscal stimulus measures: «That might give a sugar rush to the stock market, but not much more.»
«China’s sustainable rate of growth is probably no more than 2 or 3%»: George Magnus.
In early 2023, investors had high hopes of a recovery boom in China. It has turned out to be a disappointment. What happened?
The government has been quite vocal that they wanted to see a consumption led recovery. Many economists thought it was almost inevitable that there would be a consumption rebound as people had become very restrained in their spending in 2022 because of the lockdowns under the zero Covid policy. What’s happened is that although we’ve seen a bit of a rebound in low-ticket items such as eating out and travel, we haven’t seen a robust recovery in home sales, automobile sales and more expensive things. There was much greater caution by households than we thought was likely based on what we’d seen in other countries that had left Covid behind.Is there a crisis of confidence among consumers?
We may still see a delayed rebound in consumer confidence and sales in bigger ticket items. We shouldn’t rule it out just yet. But the clock is ticking, and there is a possibility that it won’t happen.Why would that be?
Part of it is a psychological thing, and part of it is a structural problem. The psychological issue is caused by what’s been going on in real estate during the past two plus years, about homes that have been promised that haven’t been delivered. China has a pre-sale model of home sales, which means you start paying your mortgage even before the property is built or finished. A lot of households have been affected by this. Given the fact that so much household wealth is tied up in housing, people have become very cautious. They have built up their savings deposits in banks, and so far they haven’t wanted to liquidate them.And the structural problem?
This predates Covid. It’s the familiar story that in China, because of the unbalanced nature of its economy, household incomes are a low part of the economy, and consumer spending is only about 40% of GDP. They don’t account for nearly as high a proportion as in other emerging market peers, let alone in the US, Europe and East Asia. That’s the structural issue which the government has not wanted to deal with for years. So we’re looking at a double whammy, a structural constraint and a psychological problem which both affect consumers’ willingness to spend.On the issue of the disappointing recovery, markets hope for new monetary and fiscal stimulus measures. Would that jumpstart the economy?....
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